How to save $1M for retirement

Some people have a million dollars or more saved for retirement, but most people have far less. USA TODAY asked Jeanne Thompson, a vice president at Fidelity Investments, for the best ways to boost your retirement savings.

Q: What are the characteristics of people who have a million dollars or more saved for retirement?

A: Last year we did a study of 401(k) millionaires in Fidelity-administered plans, and one of the key things they did to save their way to a million dollars was to take full advantage of their employer 401(k) match and profit sharing. About 28 percent of their 401(k) balances came from their employer. That includes their employers' contributions and the growth on those contributions.

We found that every year employer contributions boosted the average 401(k) millionaire's savings by almost $4,600. We specifically studied 401(k) millionaires who earned less than $150,000 a year, and we found they had worked at their company for more than 30 years. They were on average 59 years old. They also invested a significant portion of their savings in stocks and stock mutual funds. One of the key findings is that it didn't happen overnight. It took many years of saving and investing.

Q: What else should you do to save $1 million in your 401(k)?

A: To start, it's critical to start saving for retirement in your early 20s, and aim to invest at least 10 percent to 15 percent of your annual salary to your retirement savings. The 10 percent-15 percent savings rate can be a combination of your savings as well as contributions from your employer, like company match or profit sharing. It's key to take full advantage of the company match and/or profit sharing. Next, ensure that you're investing for growth by holding a portion of your account in company stock or stock mutual funds. This is especially important when you are young with a longer time horizon.

The 401(k) millionaires we studied held an average of 75% of their assets in company stock and stock mutual funds and achieved a median annual return of 4.8 percent in their 401(k) over the 12-year period that we looked at. This annual return, combined with our millionaires' contributions and their employer contributions, brought their average account growth rate to 8.75 percent.

Finally, when changing jobs, don't cash out. The average tenure of our 401(k) millionaires with their current employer was 34 years, so most of them likely never had the option to cash out. But even if you don't end up staying that long in your job, you can imitate the behavior of our 401(k) millionaires by keeping your retirement savings invested for the long run by either keeping it in the plan, rolling it to the new 401(k) or rolling it over to an IRA.

Q: So it's really important to save up to the company match on a 401(k)?

A: Absolutely. Not to take advantage of that is really leaving free money on the table. The majority of 401(k) workers are in a plan that offers a company match, and many don't take advantage of it, either by not saving in their 401(k) at all, or not saving enough to get the full match available.

Q: Not everyone needs a million dollars in retirement savings. Realistically how much should you save for retirement?

A: It's true, not everyone needs a million dollars in retirement. Some will need a lot more, and some will need less. To help provide a gauge, Fidelity developed a general rule of thumb, which is to save at least eight times your salary by age 67. Some people may need 10 or 12 times their salary depending on how much they plan to spend in retirement, and if they plan to retire earlier than age 67. The earlier you retire, the more money you'll need to save. At the end of the day, it's critical to develop a retirement plan based on your own needs.

Q: What is your advice on investing in the stock market?

A: It's important for people to remember that they are in it for the long haul. Saving for retirement is more like running a marathon than a sprint. But you want to make sure that you're not taking on too much risk by holding too many of your assets in stock or stock mutual funds.

Some people have 100 percent of their portfolio in stocks and stock mutual funds, and others have nothing in them. Neither is a good plan. If you are 100 percent invested in stocks and stock mutual funds, you are taking on too much risk. When the market is riding high, you can never be sure how long it will last, and if it suddenly tumbles, you could take on more losses than you want. Similarly, if you have no money in stock mutual funds, you might not earn enough to keep up with inflation.

If you don't have the stomach for the ups and downs of the market, then consider a target date fund or managed account, which is like a shock absorber for your 401(k). It can smooth the ride. You may not achieve the highest high when the market's up or the lowest lows when it drops. It helps to manage that risk for you.

Q: What advice do you have for people nearing retirement who do not have enough saved?

A: The first thing I would recommend is to max out their 401(k) contribution. They can contribute $17,500 a year. And if they are 50 or older, they can contribute an additional $5,500 a year. The second thing is adjust their retirement date. If they were planning to retire at 62, they could consider retiring later, at 66 or 67. Another option would be to delay taking Social Security until they are older, to increase the amount they will receive from Social Security. And finally, they could consider a part-time job or downsizing their home.

Q: What if you don't have the desire or time to manage your retirement savings?

A: Many people think they have the time to do it themselves, but our research shows they don't actively go in and manage their accounts regularly. People who do not have the will, the skill or the time to manage their retirement investments might benefit more if they had professional management. Eventually you'll have to turn your 401(k) into a retirement paycheck, and small changes and keeping tabs on it can make a big difference in the long run.